This case involves the GNU General Public License (GPL), which governs the use of many products sold and distributed by the Free Software Foundation (FSF), including GNU/Linux operating systems. The GPL requires, among another things, that users who distribute or publish any work derived from GPL-covered software to license that work to under the GPL to all third parties at no charge. The plaintiff, Daniel Wallace (Wallace), was not a user of FSF software; rather, he was a competitor of FSF’s, trying to sell his own operating system. Wallace brought an action pro se against FSF claiming that it was conspiring with commercial distributors IBM, RedHat, Novell, and others to fix prices for intellectual property in the market by attaching the GPL to GNU/Linux operating system software. Wallace claimed, in essence, that the GPL constituted a horizontal price-fixing scheme among competitors in violation of Section 1 of the Sherman Antitrust Act and sought to enjoin FSF from developing and distributing Linux under the GPL. On motion by FSF, Judge Tinder of the United States District Court for the Southern District of Indiana dismissed the complaint for failure to show any “antitrust injury” from FSF’s conduct, but held that Wallace had otherwise stated a claim upon which relief could be granted.In his third amended complaint, Wallace alleged that FSF was conspiring with its competitors to fix prices for software via the GPL. The court determined that Wallace was effectively claiming the existence of a horizontal price-fixing agreement, which would be illegal per se under the Section 1 of the Sherman Antitrust Act (prohibiting contracts and conspiracies in restraint of trade) because such horizontal arrangements are perceived to have a “pernicious effect” on competition. By comparison, vertical agreements (those between enterprises at different levels within the same chain of distribution) are governed by a “rule of reason” analysis because their effects will not always be anticompetitive. The court determined that the GPL could not be reasonably characterized as a horizontal agreement because it governs agreements between licensees and licensors, who are users at different levels within the same chain of distribution. Therefore, the court reasoned, the GPL is a vertical agreement, and it cannot alone constitute a per se violation of the Sherman Act.
The court then analyzed the GPL under the rule of reason to determine whether it might be an unreasonable restraint of trade. Under the rule of reason, a vertical licensing agreement may violate the Sherman Act if it produces adverse, anti-competitive effects such as a reduction in output, increase in price, or deterioration in the quality of goods and services, among other factors. FSF argued that its practice of allowing free access to software with the GPL aids competition rather than hinders it. However, the court held that the GPL may have an anticompetitive effect by discouraging software developers from creating better programs for Linux (since they could not be adequately compensated) and reducing the number of quality programs available to consumers. Thus, Wallace’s complaint sufficiently alleged a violation of the Sherman Act.
However, the complaint ultimately failed because the court found that Wallace had suffered no antitrust injury, i.e., injury of the sort that the antitrust laws are designed to prevent. Examining Wallace’s complaint, the court found that his only alleged injury was an inability or unwillingness to enter into the software business because he could not compete with users of Linux. Because this is an injury to a (potential) competitor rather than an injury to consumers or to competition itself, the court found no antitrust injury and dismissed the complaint.
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